After SDPR’s analyst briefing, we revised our 2019-20E core EPS by 22-36% to account for higher progress billings and sales from Taman Melawati and Elmina East. The current unbilled sales of RM1.6bn and new planned launches of RM2.6bn for 2018 should support our forward earnings. Reiterate BUY with an unchanged TP of RM1.61, based on a 50% discount to RNAV.

Upward Revision on 2019-20E’s Core EPS

Firstly, we increased 2019-20E’s core EPS by 22-36% to account for i) higher progress billings (higher property completion rate for Serini Tower 1&2, Taman Melawati); and ii) higher sales achieved for Viana and Tiana, Elmina East after its recent 6MFY18 results exceeded our previous core net profit by 35%. Secondly, we make changes to 2018E EPS to account for the recent change in financial year end from June to December or for a 18 month period ending December 2018. The 2018E core EPS (8.4sen) accounts for potential gains arising from a 40% stake disposal in Sieramas Development, sale of Malaysia Land Development Co. and New Lunderston Estate.

Potential for Higher Dividends Declared

Although the group has set a dividend payout policy of a minimum 20% on net profit (instead of core net profit), we believe that management could potentially declare higher dividends on higher gains from monetizing its i) non-strategic land in Kedah and Sabah; ii) sale of subsidiary/associate stakes or investment properties. Management declared an interim single tier dividend of 2.0sen in the previous quarter’s results.

Maintain BUY and TP of RM1.61

We maintain our BUY call with an unchanged TP of RM1.61 (based on a 50% discount to RNAV). The current unbilled sales of RM1.6bn (-10% yoy) and new planned launches of RM2.6bn in the pipeline (Elmina West, Denai Alam, KL East) for 2018 should support our forward earnings.

Key Downside Risks

i) lower/slower-than-expected gain/s from the sale of investment properties, land, subsidiary/associate stakes; ii) longer-than-expected for management to generate its recurrent earnings and expand property development income; iii) weaker-than-expected property sales and iii) a prolonged downturn in the domestic property market.

Source: Affin Hwang Research - 28 Feb 2018